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Price Dispersion And Demand Uncertainty: Evidence From Us Scanner Data

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  • Benjamin Eden

    () (Vanderbilt University)

Abstract

I use the Prescott (1975) hotels model to explain variations in price dispersion across items sold by supermarkets in Chicago. The effect of demand uncertainty on price dispersion is highly significant and quantitatively important: My estimates suggest that more than 40% of the cross sectional standard deviation of log prices is due to demand uncertainty. I also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good (across stores and weeks) and with the number of stores that sell the good. Temporary sales are modeled as a reaction to "unwanted inventories" that are accumulated when the realization of demand is low. The effect of demand uncertainty on the frequency of temporary sales is also highly significant and quantitatively important: Items with more demand uncertainty tend to accumulate "unwanted inventories" more often and tend to have temporary sales more often.

Suggested Citation

  • Benjamin Eden, 2016. "Price Dispersion And Demand Uncertainty: Evidence From Us Scanner Data," Vanderbilt University Department of Economics Working Papers 16-00015, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:vuecon-sub-16-00015
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    References listed on IDEAS

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    Cited by:

    1. Gaetano Gaballo, 2018. "Price Dispersion, Private Uncertainty, and Endogenous Nominal Rigidities," Review of Economic Studies, Oxford University Press, vol. 85(2), pages 1070-1110.
    2. Rachel Griffith & Martin O'Connell & Kate Smith, 2016. "Shopping Around: How Households Adjusted Food Spending Over the Great Recession," Economica, London School of Economics and Political Science, vol. 83(330), pages 247-280, April.
    3. Greg Kaplan & Guido Menzio, 2015. "The Morphology Of Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1165-1206, November.

    More about this item

    Keywords

    Price Dispersion; Demand Uncertainty; Sequential Trade; temporary sales.;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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